Who are you really doing business with? Learning lessons from Coca Cola’s experiences in Myanmar

These days
most global corporations with reputations to defend know the risks of operating
in countries where corruption is rife, and there’s a history of oppression,
conflict and abuse. So they take advice on operating responsibly, spend
fortunes on due diligence and put in place all sorts of human rights,
environmental, and anti-corruption policies. This means they can do business
safe in the knowledge that the companies they work with won’t harm local people
or the environment. Importantly for them, they won’t attract criticism
internationally or locally – right?

Unfortunately,
it’s not quite that easy. Often the information that companies need most may
actually be kept hidden. As new markets open, a big question that incoming
companies face is who they can partner with locally – get this wrong, and the
damage to local relations and image can be immense.

The Coca
Cola Company has just come face to face with the limitations of private due
diligence in Myanmar. After deciding to re-start operations in the country in
2012, the conglomerate did the right things, hiring big name due diligence
companies and spending substantial sums on checks and vetting procedures before
setting up local business ventures.

Despite
these efforts, it wasn’t until Global Witness alerted Coke earlier this year
that the company realised that its only local director also had interests in a
jade business called Xie Family. Involvement in jade should be a red flag,
given that Myanmar’s jade sector is notorious for corruption, military
involvement and environmental and human rights abuses, and that Myanmar jade is
still subject to US sanctions.

Global
Witness research shows that, over the past two decades, Xie Family has been
a key jade mining subcontractor of army company Myanmar Economic Holdings
Limited (MEHL). Subject to US sanctions, MEHL has been embroiled in controversy
over allegations of land-grabbing, environmental abuse and the use of violence
against protestors at its Letpadaung mining project. Xie Family and MEHL have
told Global Witness that they have not worked together since 2012, but figures
from last year’s jade auction show that they jointly marketed jade that sold for
over 5 million euros at that time.

That
doesn’t meant that the Coca Cola local director or Xie Family have committed
any wrongdoings, but these connections are ones that due diligence should be picking
up, in order that incoming companies can make an informed decision on their
partners.

No
reputable company wants to get into bed with a corrupt official, a shady
businessman or a human rights abuser. So, what should they be doing to avoid being
exposed by hidden skeletons in their partners’ closets?

·
More robust due diligence. Coca Cola has stated that it had conducted comprehensive due diligence
based on the information available at the time. However, the local director involved
was known to have links to the jewellery trade, which should have raised red
flags, and further digging into any links to Myanmar’s ruby or jade sector both
of which are subject to US sanctions.

·
Publicly identify who owns and controls in-country ventures and
partnerships, and disclose background information on these individuals. Myanmar has experienced
decades of secrecy and severe restrictions of free speech resulting in scarce
public information and serious gaps in even the best corporate due diligence.
To mitigate risk, international companies should publish the names and
identifying information of the individuals who own and control their local
ventures (also known as their ‘ultimate beneficial ownership’). Companies
should also disclose the information they have on these individuals in terms of
other business interests, political or military connections, and any credible
allegations of corruption environmental or human rights abuse. Such publication
is crucial to allowing local people and independent groups to flag gaps and
concerns. Companies should also disclose identified risks as they
arise and mitigating steps.

·
Join the call to end anonymous companies. Public disclosure of companies’
ultimate beneficial owners worldwide would help companies gain greater access
to the information they need to assure themselves, local communities and
institutional investors that they are getting into the right bed in the first
place.

Since the Xie
Family connection has come to light, Coca Cola has made some positive moves,
but more action is needed.

Today, Coca
Cola has published the names of the directors and shareholders of its local
subsidiary, and disclosed information on the Xie Family connection as part of
the report it has submitted under the US Reporting Requirements. This is a
good start, but much more is needed. The two shareholders listed are both
companies, and no details have been provided on the individuals who stand
behind them, or what other business interests or connections these figures or
the subsidiary directors have. Without this information, local people are not
in a position to identify any gaps or flag any concerns.

Coca Cola
has used its influence to facilitate a dialogue between Global Witness and the
jade company, Xie Family. As a result, this company is now considering early
publication of information in line with the global transparency standard, the Extractive
Industry Transparency Initiative, including details of the volumes of jade it produces, its payments to
the government and any arrangements with state-owned enterprises including army
companies.

Companies
that choose to go into emerging markets can make substantial gains, but the
risks are also high. If companies are serious about responsible business, real
transparency is essential to avoid causing harm and reputational damage – and crucially, setting up operations which both they and the
countries in which they operate benefit from.